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Sunday, May 29, 2011

Why Should I Invest in Real Estate??

This is the million dollar question. Why put your money into Real Estate, let alone Rentals in the Metro Detroit Area.

First, let me suggest you go to the Investing Lessons section of our web site. (

You’ll find several video’s there about investing, projects, and what to expect when buying a rental. You can follow us on twitter, by clicking follow on the right side of this page. I often send out pictures, and updates about what we’re working on during the day.

Also, be sure to look at the About Us section (, so you can see how and what we’re doing, is truly different from any other company in the area. Unlike virtually every other company offering to assist you in building a portfolio, we do not sell Turn Key houses. We’re a fully licensed and insured Real Estate Brokerage in the State of Michigan. The only fee’s we collect are from the Sellers in the form of Standard Real Estate Commissions, and a standard commission for on going Property Management (view more on our management services at

Companies selling “Turn Key” properties will not have your best interest at heart. They are merely looking for the quickest profit. We partner with all our clients, and will only put a client in a house we ourselves would purchase. We also offer guarantee’s to further mitigate any potential risks.

Why Detroit? Well, let me start by saying, we never purchase homes in the City of Detroit. The vast majority of people in area will tell people they live in Detroit. But the reality is 60% of Metro Detroit’s population lies outside of the city limits of Detroit. Oakland, Macomb, Monroe, Wayne, Washtenaw and of Lenawee Counties all make up Metro Detroit. As the “City of Detroit” as we often refer to it, suffers from unique issues, the Suburbs are quiet solid and do not suffer from the same issues as the city proper does.

We purchase in “bedroom communities” all over the Metro Area. While we do accept Section 8 Tenants that is by choice, not necessity. We receive just as many “cash” applications from working families, as we do from government assisted tenants.

Also, national studies have shown that the pool of renters is increasing, and should continue to do so for several years. Why is this? Several Factors.

Renting is Easier then Owning- There is 76 Million aging baby boomers, and an estimated 44 Million people in the generation that follows them. We’ve seen this play out in our own business. As people age and the kids move out, it becomes harder for them to maintain their house. However, they know the area, and don’t want to leave their neighbors. So they come to us in search of a rental property. Renting allows them to stay in the area they raised their children in, and gives them the advantage of not having to do the upkeep and repairs on the property. As part of the management service we offer, tenants can contract our services for maintenance they are required to do in their lease, such as snow removal and lawn care.

Mortgage Laws have Changed- It used to be, you could purchase a property for no money down, or at worst 10%. Now lenders are requiring a 20% down payment. This is pricing several people out of the market. Furthermore, federal guidelines have been instituted that mandate the fee’s a mortgage broker can charge for originating a loan. These new fee’s are structured, so that a broker actually loses money if they write a mortgage for less than 40,000.00 Take into consideration the minimum 20% down, and the smallest loan most people can receive, is 48,000.00. This is why we target certain price points in the market. People can no longer afford to finance “starter homes”. Creating a gap in the market place. People starting out are now forced to put off buying their first home for a number of years. However, starting a family in an apartment is not as attractive an option as a single family home is. Thus, young families are by far the largest segment of the population we supply homes too. Not only do they receive the experience of starting life in their first “Home”, they get to do so with the safety net of a maintenance crew.

Underwater on current home- Just because someone has made the choice to let their house go to foreclosure or short sale does not mean they are unable to pay their bills. The market crash left many people drastically underwater on their mortgages. In past years, the typical foreclosure was due to people unable to pay their notes due to job loss or other financial hardship. However, as the market decline continued, we began to notice the profile of the typical person to default on a loan changed. It became a financial decision made out of choice, not force. Many people have taken stock of their lives and financial situations, and realize that they can save thousands of dollars a year by walking away from their property, and renting a house in the same area. In many cases, they save hundreds of dollars a month. In the first 2 quarters of 2011, our office had 42 people come to us looking to not only rent a house from us, but also contract us to handle the Short Sale of their current properties. They were not walking away because they couldn’t pay the note. They walked away because they had come to the conclusion that the amount of the note they owed, far outweighed the value of the asset. Therefore it was in the best interest to put their money to work in other ways, rather than putting good money after bad. This leads me to my next point

Real Estate is often sold as the “single largest investment a person will ever make”. And this is true! It IS the largest investment they will make, but often, it’s the worst performing. Most people’s largest asset is their personal residence. However, even without the recent price collapse of housing, a person’s primary residence is not a good investment. This is why the government offers as many tax credits as they do for homeowners. The average person finances 80% of their property. When you signed your loan papers, there was a form showing the total payments. The average 225,000.00, on a 30 year mortgage, at today’s rates, of 5%, will really cost a person $483,139.46. Consider property taxes, repairs, etc, and it becomes clear, that a primary residence does not actually increase a person’s worth. Money is a tool. If it’s not working for you, it’s useless.

Now let’s look at rental properties. We have been fortunate to assist investors with more than 150 new homes in the last 3 years. The typical home is 3 Bedrooms, Living room, Dining room, Kitchen, with a Basement. Purchase price for this type of home is 23,000.00. The average rehab is 7000.00. Bringing the total initial investment to just 32,500.00. Of course, some projects are slightly less expensive, some more. But over the years, we’ve seen these numbers are a very solid bench mark.

The least expensive rental we have is 850.00, and rates are on the rise. At 850.00 per year, a property will Gross 10,200.00. Property taxes average 2100.00 per year. Property insurance, 500.00. Management fee’s 1020.00, and as a safety net, we set aside 1000.00 per year for repairs and maintenance. Bringing the average yearly net to 5580.00 or an 18.6% return on investment.

Those are just the rough numbers. The market has already begun to show signs of improvement. While prices overall are obviously still declining, the bottom of the market has already started to rebound. We’ve seen a 10-15% increase in prices at the low end of the market for both Macomb and Oakland County.

Make sure to watch our instructional video on the difference between Scrap, Cash and Mortgage Values. I explain the different ways homes are valued, depending on their use, and the purpose of the valuation.

When we consider the outlook for the market, it is reasonable to expect all real estate, especially in the price point we purchase properties at, to appreciate over the next several years. When adding capital appreciation to the annual return on investment, there is no other investment that out performs real estate.

Insurability is also a factor. Investors, who choose to place their capital in almost every other form of investment, do so without any insurance or recourse. Whether investing in Stocks, Gold, Commodities, or even a small business, there is no insurance policy or security provided. Real Estate however, does come with some assurances. First and most obvious, is Property Insurance. What happened to all of the people who owned Enron stocks? Or General Motors? Or any other company that was considered “Blue Chip”. When the company collapsed, their investments were wiped out. With property insurance, your initial capital is secure. If your investment suffers a fire, flood, or other catastrophic damage, you will receive your initial capital back! Not only that, but thanks to “replacement value” in most cases you will actually show a profit!

In addition to property insurance, we hold a security deposit on all leases. As you’ll see in other sections of our site, we only purchase properties in popular suburban neighborhoods. This not only ensures a strong rental market, it gives us the advantage of a strong court system. In the even we do have a bad tenant, we are often able to evict the tenant, and place a new tenant, in the very same month. Meaning the security deposit covers the lost month’s rent, further insuring your returns.

Tax benefits. If considering investing in any type of real estate, consult a CPA familiar with property investments. They will be able to direct you to all the tax advantages available to landlords and multiple property owners. Some of the benefits include, Depreciation (you can depreciate your investment over 27.5 years. Are you allowed to take a deduction for the Microsoft Stock you purchased?), You can deduct travel expenses, Repairs, Legal Fee’s, Insurance, Home Office, etc. If structured correctly, most investors pay much less (if any tax) then they would with, Stocks, Bonds, Commodities, etc.

And finally, one of the biggest advantages, is a principle called “Compounding Returns”

What Does Compound Return Mean?
The rate of return, usually expressed as a percentage, which represents the cumulative effect that a series of gains or losses have on an original amount of capital over a period of time. Compound returns are usually expressed in annual terms, meaning that the percentage number that is reported represents the annualized rate at which capital has compounded over time.

In plain English, an investor with 10 homes will return on average, 55,800.00. Or enough to add two houses to their portfolio. The following year, they would earn 66,960.00 and would be able to add 3 houses. The following year 83,700.00  etc etc. As the profits are invested back into the portfolio, the return rate quickly moves from 18-20% in the first year, to 23% in rear two, 28% in year three, etc. All without any additional capital infusion. Again, this rapid rate of compounding returns cannot be achieved with a CD, Commodity, and Stock etc.

If you have questions, you’re welcome to contact Bill by email at or give us a call at the office 313-405-7368

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Wednesday, May 25, 2011

Another Wide Eyed Detroit Investor See's the Light

Today illustrates why I started this Blog in the first place.
Yesterday I received a call from an investor, who was interested in having us manage a 20 unit building he has under contract. After a short conversation, we decided to meet at the property, and see exactly what this project would entail.
Well, as is often the case, it turned out the investor had never actually BEEN to the property. He wrote the offer blind. He took the pictures in the listing at their face value. He also took the sellers word, that the property was 80% rented.
I’m sure by now you can see where this is going. We pulled up at 10am today. I meet Mr. H for the first time face to face. It was obvious, that Mr. H was surprised to see the surrounding area consisted of boarded up, and falling down properties. The building in question appeared to be fully rehabbed in the listing photos. All new kitchens, new windows, etc. The reality, this building has not been actively managed in years. 25-30% of the windows were broken and or missing all together. The front doors to the building were gone! The vast majority of units had been kicked in, and stripped. Gang related graffiti was spread throughout the interior of the building.
5 units WERE occupied. But not by paying tenants. These units were obviously being occupied by squatters. The plumbing was missing from the basement. The electrical to the building had been jumped with scraps of metal. And unfortunately, this is not the first time we’ve seen a Detroit Rental Property presented for sale in this manner. In all likely hood, the seller hasn’t seen their property in months, if at all. But instead is relying on the pictures and information his “man on the ground” is sending.
This building (1442 Calvert, Detroit) was up for sale on for 130,000.00.
I figured it would cost 100K just to bring this up to a legal, rentable status. At that value, we advised him to offer 50K, or walk away from the deal. Thankfully, he decided to walk away.
I came back to the office, and pulled him some listings in Mount Clemens, smaller units, but in MUCH better shape. They were asking 6500 per door in Detroit, and the building needed significant work, with essentially 100% vacancy, and the need to evict several people. I was able to show him a 5 unit building in Mount Clemens that was in livable condition, for just 7800 a door. The taxes in Detroit were 1500 per door. In Mount Clemens, 950 a door. The Mount Clemens house, needed approx 1500 worth of work per door, Detroit, 5-6000 per door.
And of course, the rental income. In Detroit, the 2 beds would have brought 400-450. In Mount Clemens, 450-500. The numbers were simple. On a spreadsheet, the numbers in Detroit are only slightly better. BUT when you factor it over 5 years, Mount Clemens becomes a better choice. And when you take the decision out of the vacuum of a spreadsheet, and put it in the real world. It’s a no brainer. Unless you’ve physically walked the halls of these buildings as many times as I have, you just can’t appreciate the true condition, and level of effort required to do a Detroit Apartment.
Thankfully, Mr. H called us before being totally locked into this Detroit project. It looks like we will be able to get him out of his current purchase agreement, and move him to a much much safer suburban property.
As always, check out or for more information on how Summit Consulting Services can help you be Successful investing in rental properties in the greater Metro Detroit Area.

Monday, May 9, 2011

Comentary on "wholesale sellers"

First off, Happy Mothers Day. Everyone’s got one, everyone should appreciate theirs.

So on this Sunday, I was posting a few rental ad's, and happen to see a couple "wholesale property" video's on YouTube. I never understood why people believe the "wholesale" idea. To do so, one would have to believe that the wholesaler has an abundance of properties that cost less then retail, and just can’t wait to sell them off. If they did have quality properties for below retail, why wouldn’t they just list them and get full market price? They often sell them as “good rentals”. Again, if they would make a good rental, why are they so quick to sell them?

The reality is, banks sell their houses through realtors. They just do. Before it hits the market, it will have been viewed by an appraiser, a realtor who is not the listing agent, and a property inspector. The only thing that goes to auction, are groups of unsellable homes that were determined to be too damaged, or carried too many taxes etc to make it cost effective to list. They get sold for pennies on the dollar, and there's a reason, they are nightmares to deal with. Often back taxes must be paid, there are tickets against the house, past due water bills, and clouded titles.

Perfect example. I had a great guy contact me from California about 2 years ago. He had just picked up a "great wholesale property" from another local company. He asked us if we would manage it, which of course we did. He had paid 12K for a 3 bed bungalow in Redford. Market MLS prices for a foreclosure in the area runs about 16-18K. On the surface, great deal right?

Well he received this on a quit deed. This means, taxes and water had NOT been paid at the closing. It carried a 1700 water bill, a number of violations from the city, and nearly 4K in back taxes. Suddenly, not nearly such a good deal.

The wholesale company had set this client up with some contractors, who of course, had done the repairs without any permits or city knowledge. Not only did this result in a number of costs and hours to clear up. The repairs we're done poorly. On the surface, they looked great. But the plumbing wasn't actually connected, outlets were wired wrong, and a "new" furnace with a cracked heat exchanger had been installed (heat exchangers keep fresh air and carbon monoxide separate in a furnace).

Needless to say, once he added it all up, it would have been less expensive as well as faster to purchase a property through the MLS, with a proper closing. He’s gone on to do another 15 houses with me, all done the traditional way. And every other house we’ve done, out performs his original property year in and year out.

Beware of what we in the office call, the "Big Watch Guys". You know who I'm talking about. All their info has a picture of them in an expensive suit, or with some big house in the back ground. And they generally have a watch the size of a wall clock on their wrist.

No matter who you include in your team, it's imperative those people have real experience. There's no room for those looking to get rich in a few deals. It's like any other business, success is built over time, by doing 1 solid deal after the next. Taking short cuts never leads to quick success.

Saturday, May 7, 2011

Real World Returns vs "Projected Returns" when Detroit Real Estate Investing

Perhaps my favorite topic. I receive countless calls from investors who have "run the numbers" and are convinced that they will make 30+% returns by investing in the actual City of Detroit (read my previous blog post about the difference between City of Detroit, and Metro Detroit). Generally, a hour long conversation ensues, and in the end the investor makes the decision to have us put their money into Suburban Rentals.

A few basic things to consider. Rent Income, Taxes, Insurance, Vacancies, City Fee's (rental registrations), and repairs. When most people look at these numbers, they do it in what I call, a vacuum. They don’t take the realities of the local area into account. The City of Detroit is a rough place. The vacancy rates are higher, the insurance is higher, the taxes are higher, rents are lower, and the damage………boy can I tell you stories about the damage. The average Detroit rental costs roughly 3-5K to repair when a tenant moves out. That number comes from the experience I have, doing over 100 Detroit properties. Generally a total repaint of the home is required, flooring needs to be replaced etc. That’s best case. Often, the mechanicals are missing, walls have damage, etc. And your insurance will not cover those repairs. In the suburbs, a turn over costs 500-1500 on average.

Now, in the suburbs, you receive more rental income. In Detroit, a typical three bed, 1 bath bungalow, will bring you 750.00. Same house in the suburb, 900.00

Insurance, if you can even find it, will run you 800-1000 in Detroit. Suburbs, 400-500.

Taxes on a typical 3 bed in Detroit, 2800-3200. In the suburbs, 1800-2100

Average Marketing time for a Vacant in Detroit, 90-120 days. In the Suburbs 7-21 Days.

Average time to evict in Detroit 90-120 days. In the Suburbs, 14-21 Days.

Start adding all of these factors together, and it quickly becomes evident, over a 5 year period, the Suburbs are a much better return on your dollar. And that’s not even taking into account one of the biggest factors. Capital Appreciation. In the “City of Detroit” you will see NO appreciation over 5 years. You may very well see depreciation. The suburbs are of course a different story. In my next blog, I’ll go into the population shift the city is seeing. But, in  the 1st quarter of 2011 prices are UP 8-15% in the suburbs. And the number of available homes is down 30%. Those are clear indications, the bottom has been reached. And over 5 years, one can expect to see asset appreciation, as well as an extremely healthy Return on Investment.

Next we’ll cover the population shifts from the city to the suburbs. After that, we’ll go into why Real Estate is safer and more profitable to invest in, then Stocks, Bonds and Commodities

Another Reason we Charge less for Detroit Property Management

So I was just sitting here, and recieved the monthly news letter from the "biggest" management company in the area. You've likely seen them. Giant company, who has no idea what their properties actually look like. They pick up a number of clients with "capped" monthly fee's. WHICH , is a great marketing idea. BUT, they charge a LOT more for everything else.

Instead of simply passing the actual cost of a repair to the owner, they mark up repairs 50%! And NOW their charging a "fuel surcharge" for going to their properties. And my favorite, they are raising their lawn cutting fee's to 27.00 a cut. They also insist that they must cut it every week, when we all know every other week is fine.

We're just 20.00 a cut, every 2 weeks. And, we actually pass the contract invoices on to our owners. So they can see, we don't make anything off their repairs. Simple concept really, if your Investing in Detroit Real Estate, you should make your fee's off PROFIT, not expenses!

Friday, May 6, 2011

Where should I look when considering Detroit Real Estate Investing

This could be a stand alone blog topic, and one I'll likely write about often. Lets cover, what "Detroit" really is, in terms of actual locations. When people ask where the best neighborhoods are, for Detroit Real Estate Investing (, its important to identify what they consider "Detroit" to be.

To people outside of the area, Detroit is a huge area. From Ann Arbor, to Saint Clair Shores, people often say "I live in Detroit". When in reality, they have NOTHING to do with Detroit.

REAL Detroit, is a city, located in a major metropolitan area. It actually only accounts for 25-30% of the population. And yet, its easily the most recognizable city in the area. We do NOT buy houses in Detroit. We buy houses in “Metro Detroit”. There was a time, 7 years ago, when we were very active in the actual City of Detroit. I would argue we were one of the first to see value there. But, we were also one of the first to realize that with the change in the housing market, our dollars are much more productive in the suburbs.

You can easily find a house in the City of Detroit for 5K. BUT, you will pay 40% more in property taxes, you have NO city services, the police will not protect your property, the neighbors will steal anything they can from your property, the police will never respond if you ever need to call them for a theft, or break in. And worst of all, good luck evicting a tenant through 36th District Court. Detroit Property Management is extremely difficult when you receive no governmental support to enforce leases, etc.

So we’ve moved all our operations to the suburbs. Over a 5 year period, our investment costs are lower, our rental rates are higher, our vacancy rates are MUCH lower, and best of all, on the occasions when we DO need to do an eviction, it takes just weeks, instead of months to physically remove a tenant.  

Thursday, May 5, 2011

Detroit Real Estate Investing - A series of rants and insight

After many years of experience, and the prodding of several clients. I’ve decided to start posting my rants and wisdom for all to read. Take from it what you will. I will be updating as often as possible.

A little about who I am, and what I do. I hold degree’s in Marketing and Management. I worked for Home Depot at the corporate level for nearly 3 years. In short, my job was to teach the new people everything they needed to know about the products in their departments. I was in charge of product knowledge for Kitchen and Bath, Plumbing, and Millworks. Essentially, I received expert schooling on how to install almost everything in a home, direct from the manufactures.

After Depot, I decided working for myself was better, and become a licensed Appraiser. Back in the “good old days” if you will, when we had the refi boom, and finding comps took 5 minutes. As I saw that start to peek, I became one of the only Appraisers willing to do foreclosure appraisals in the City of Detroit. This was an education beyond belief!

From there, I started rehabbing houses for investors, as well as doing appraisals, and eventually became a fully licensed agent. So you could say, I literally built my company from the ground up.

There’s a lot about Detroit Real Estate Investing people don’t tell you. CNN stories, articles in the Wall Street Journal, etc, they never tell the real story. The facts are, you can buy on 1 block, and have wonderful homes. And the very next block will be a certified war zone. Check out my investment site, We also have a couple YouTube channels we put together. Click on the video’s on the right or left, and check out some of our other projects. If ever you want to ask a question, or get some additional info, send us an email at

About Me

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Roseville, Michigan, United States
Detroit Property Management - - We are one of the fastest growing Investment and Management Companies in the area. We have a unique blend of talents, that no one else can match. A licensed, Appraiser, Builder, Realtor, our insites into the market have allowed to double in size, during the "worst real estate" market of our lifetime.